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Monthly Archives: May 2012

Tax Court Ruled that Permanent Resident's Wages Paid by German Government Not Tax Exempt

The wages of a permanent resident of the United States that were paid by Germany and a foreign government office were not exempt from taxation under the tax code and a North Atlantic Treaty agreement, the U.S. Tax Court held May 1 (Harrison v.Commissioner, T.C., No. 15074-10, 138 T.C. No. 17, 5/1/12).

The Tax Court concluded that Rosemary Harrison was not exempt under Internal Revenue Code Section 893(a) and was not a part of the civilian component within the meaning of the Agreement Between the Parties to the North Atlantic Treaty Regarding the Status of Their Forces (NATO SOFA).

The place where Harrison was employed, the German Defense Administration, is a miscellaneous foreign government office as classified by the U.S. Department of State in its listing of German missions. The entity is not part of and does not carry out diplomatic or consular operations.

Read more at: Tax Times blog

Philip Marris Agrees to Pay $500MM to Resolve LILO and SILO Leasing Transactions

         RICHMOND, VA – May 22, 2012 – Altria Group, Inc. (Altria) (NYSE: MO) today announced that it has executed a Closing Agreement (Agreement) with the Internal Revenue Service (IRS) that, subject to court approval, resolves the federal income tax treatment for all prior tax years of certain leveraged lease transactions (referred to by the IRS as lease-in/lease-out (LILO) and sale-in/lease-out (SILO) transactions) entered into by Altria’s wholly-owned subsidiary, Philip Morris Capital Corporation (PMCC).

Altria expects to pay approximately $500 million in federal and state income taxes and related estimated interest as a result of the Agreement. Of this amount, Altria expects to pay approximately $450 million in federal income taxes and related estimated interest with respect to the 2000 through 2010 tax years by the end of the second quarter of 2012. The payment is net of federal income taxes that Altria paid on gains associated with sales of assets leased in the LILO and SILO transactions from January 1, 2008 through December 31, 2011. Of the $500 million, Altria also expects to pay approximately $50 million of state taxes and related estimated interest. The tax component of these payments represents an acceleration of federal and state income taxes that Altria would have otherwise paid over the lease terms of the LILO and SILO transactions. 
Pursuant to the Agreement, the IRS will not assess against Altria any additional taxes or any penalties in any open tax year through the 2010 tax year related to the LILO and SILO transactions; nor will the IRS impose penalties with respect to any prior tax years.
Altria also has agreed to dismiss, with prejudice, the pending litigation in federal court related to the tax treatment of the LILO and SILO transactions and to relinquish its right to seek refunds for federal taxes and interest previously paid.

Read more at: Tax Times blog

“Pennies on the Dollar” – IRS Expands Offers in Compromise!

The IRS has completely revamped its offer in compromise guidelines to greatly increase the number of taxpayers who will be able to qualify. The new guidelines are announced in a news release by the IRS (IR-2012-53, May 21,2012).
Our tax attorneys will be revisiting many of the offers in compromise that are pending, and we recommend that all tax lawyers, enrolled agents, and CPAs who have clients who have submitted unsuccessful offers in compromise in the past review their clients' current financial condition to see if they will qualify under the new offer in compromise guidelines.

The most revolutionary change that our tax attorneys have noted is the methodology of calculating the offer amount. The amount of the offer in compromise has always been determined by the amount of the reasonable collection potential (RCP). RCP is determined by adding the realizable value of the taxpayer's assets to his Future Income (FI). Thus Offer amount = RCP +FI. 

Future income is defined as an estimate of the taxpayer's ability to pay based on an analysis of gross income, less necessary living expenses, for a specific number of months into the future. In the past a taxpayer who could pay the offer amount in 5 monthly payments would multiply his monthly available income by 48 months to arrive at Future Income. A taxpayer who wanted to pay the offer amount over a 24 month period was required to multiply his monthly available income by 60 months to arrive at his Future Income. In both cases Future Income was added to the realizable value of the taxpayer's assets to arrive at RCP, or the offer amount. 

Under the new offer in compromise guidelines Future Income will be arrived at by multiplying the monthly available income by 12 if the offer can be paid in 5 monthly payments or less. If the taxpayer needs 24 months to pay the offer amount in full then the Future Income will be determined by multiplying the monthly available income by 24. The deferred payment option which allows payment over the life of the statute is no longer available. Our tax attorneys have formulated a simple example. 

A taxpayer who has $50,000 in realizable equity in assets, and monthly future income of $2,000 will pay $74,000 if the offer amount can be paid in 5 months or less, and $98,000 if the offer will be paid over a 24 month period. This compares to offer amounts under the old guidelines of $146,000, or $170,000, respectively. The higher the monthly future income, the greater the discrepancy.

The new guidelines also include changes to the necessary living expenses:

1. Payments on delinquent State taxes may be allowed in full or in part.

2. Minimum payments on student loans guaranteed by the federal government will be allowed for the taxpayer's post-high school education (note it says nothing about loans incurred by parents to pay for their children's' tuition).

3. When the taxpayer owns a vehicle that is six years or older or has mileage of 75,000 miles or more, the IRS will allow additional operating expenses of $200 or more per vehicle.

4. The first $400 per vehicle of retired debt will not be added back to monthly available income.

Another welcome modification; the calculation of so-called "dissipated assets" has been radically altered. While the exact details are subject to numerous exceptions, and clarifications, in general assets which have been dissipated three years or more prior to the submission of the offer in compromise will not be included in the RCP. For example, if the offer is submitted in 2012, any asset dissipated prior to 2010 should not be included.

One thing that hasn't changed is that zealous advocacy on the part of tax attorneys, CPAs and enrolled agents will still be essential to negotiate the best possible deal with the IRS. Careful planning on the timing of offers is also essential.

One of the few negatives is that even before these changes were announced the IRS was overwhelmed with the number of offers in compromise it was receiving. Things are likely to get worse. Our tax lawyers are guessing that very few offers in compromise will take less than a year for the IRS to process.

Another negative is that this is bound to bring unscrupulous "offer mills" out of the woodwork. Even with the new guidelines an offer in compromise is not for everyone, and the danger is that desperate taxpayers will wind up giving up their hard-earned dollars in the hopes of realizing a benefit which is not available to them.  

If you have owe $100,000 or more to the IRS, and you would like to learn more about your options, contact the Tax Lawyers at Marini & Associates, P.A. for a FREE Tax Consultation at or or Toll Freeat 888-8TaxAid (888 882-9243).

Read more at: Tax Times blog

Use of Offshore Insurance Scams & Merchant Accounts to Evade Taxes – IRS Zeroing in on.

According to senior government officials, the government is continuing to crack down on offshore tax avoidance in a variety of ways, including a new focus on the use of offshore insurance companies and offshore merchant accounts to hide assets.

Officials described many facets of an overall goal to stopping tax evasion, speaking to the Civil and Criminal Tax Penalties Committee May 12 at the spring meeting of the American Bar Association Section of Taxation.

, said in addition to multiple investigations of banks that are ongoing, the government has initiatives in earlier stages that it expects will be productive as well.         

IRS is looking at offshore insurance scams that involve “protected cell corporations,” in which a taxpayer's money goes into a cell that is separate from all the company's other investors, John McDougal, a special trial attorney in the IRS Office of Chief Counsel said.

In this structure, he said, “it appears that you're one of many shareholders in the company, but it's really designed to disguise the fact that you're controlling your own funds in your own protected cell. That's really subject to abuse and we're going to be looking at this.”          

In a second area, the government is looking at offshore merchant accounts used by U.S.-based businesses to divert their credit card income offshore. He said the government has already issued a John Doe summons in this area to identify a few cases it can examine and potentially get information that it could use for additional summonses.

As those efforts go forward, he said, IRS is using information it has gleaned from its Offshore Voluntary Disclosure Program to target banks engaging in helping taxpayers hide assets overseas.

If you have IRS Tax Problems, contact the Tax Lawyers at Marini & Associates, P.A. for a FREE Tax Consultation at or or Toll Free at 888-8TaxAid (888 882-9243).


Read more at: Tax Times blog